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Litton Loan Complaints Continue Following Settlement

Distressed homeowners target Goldman Sachs subsidiary

By Jon Hood
ConsumerAffairs.com

August 19, 2009

As a “loan servicer,” Litton -- owned by Goldman Sachs -- handles the operational aspects of consumer loans: sending out statements, receiving and tracking payments, notifying consumers of overdue payments, and initiating foreclosure proceedings.

In April, Litton settled a class-action lawsuit alleging that the company failed to credit borrowers' mortgage payments in a timely fashion, then turned around and charged late fees for the purportedly tardy payments. In some cases, consumers' accounts were put into default. The suit covered all homeowners whose mortgage transaction was transferred or sold to Litton between October 2002 and February 2009, and who were charged erroneous late fees within 60 days of the transfer.

Litton tracks consumer payment records using a complex automated servicing platform. Known as “Risk Assessment Default Analytic and Reporting” (or “RADAR”), the system transfers information from primary lenders to Litton for processing. This procedure is known as the “boarding process.” According to the suit, RADAR glitches were the main cause of payments being wrongly flagged as late.

In court papers, former Litton employee Debra Murray said that “[I]t was … common that information regarding loan histories was improperly transferred from the prior lender during the loan boarding process.” Murray further said that 95% of consumer complaints “were caused by Litton's mistakes in servicing the borrowers' loans and were resolved in favor of the borrower.” The bulk of these complaints alleged that Litton failed to credit consumers for payments they had already made.

Overwhelmed

Murray also said that Litton was becoming overwhelmed by the number of accounts it handled, and became increasingly careless and negligent as a result.

For example, Murray said that when a payment couldn't be matched to an account, it was placed in a catch-all “payment clearing account,” where it sat for months or even years. Meanwhile, the account of the consumer who sent in the payment went into default, collecting late fees and sometimes ending up in foreclosure. Murray also said that, when she found a missing payment, she was instructed to apply it as of the day it was discovered, rather than the date it was received. This, too, caused customers who sent their payments in on time to be assessed a late fee.

In July 2007, a federal judge in California certified a class of plaintiffs alleging claims under the Real Estate Settlement Procedures Act, or RESPA. The case was settled in April; as part of the agreement, Litton agreed to create a settlement fund containing $537,500, from which plaintiffs can draw up to $60 each. The narrow definition of the class and relatively small settlement amount likely left some consumers disappointed, but it at least signaled that Litton was willing to put the issue to rest.

Loan modifications

Four months after approval of the settlement, ConsumerAffairs.com continues to be bombarded with Litton complaints. An overwhelming number of homeowners report that they were promised a loan modification, only to be told months later that they did not qualify. In some cases, Litton dragged the process out by claiming they haven't received necessary paperwork or that the evaluation is taking longer than expected; in many cases the delay is so great that consumers come dangerously close to foreclosure.

Low-income advocacy group ACORN labeled mortgage servicers that don't participate in the program as "homewreckers," but Litton and HomEq, the only other lender that had failed to participate in the program, have since announced they'll start doing so.

Litton said it has offered more than 35,000 trial modifications using terms "consistent with the Treasury program" since it was announced. Litton modified another 44,000 loans, the company said, in the 12 months before the start of the program.

"Our company has used modifications as the primary method of helping homeowners avoid foreclosure. In the 12 months prior to the announcement of the Home Affordable Modification program, we modified more than 44,000 loans, representing about 10% of our loan portfolio. As the details of the federal program emerged, we continued to modify loans, and by adopting this program, we will continue to make every effort to keep homeowners in their homes,” said Larry B. Litton, Jr., Litton’s president and CEO.

Litton said customers who are having difficulty making their mortgage payments are encouraged to call (800) 247-9727 or visit www.littonloan.com to determine if they are eligible for a modification or other loan workout solution.

Homeowners beg to differ

But homeowners who have sought assistance from Litton say the process isn't as easy as the company claims.

Al of Empire, MI writes:

I applied for a loan modification March 4, 2009. Since that time I have sent all requested documents and forms including tax forms, proof of pension and SS income. These documents were claimed via phone conversation as "haven't been received" or "in review" or "I can't tell you" or "we'll let you know in writing. They would never commit to a process or approximate date. Now as of July 28, 2009, nothing.

Delianes of Miami, FL had a similar experience:

In December 2008 I had requested a loan modification to Litton Loan Services. I was paying my monthly payments on time but struggling in order to keep my loan current. They told me that it takes aprox 90 days. A month after I called them and they said that they never received any documents, even though I had the fax confirmation, I faxed all the documents again. A month later they sent me a letter that my request was denied because we had insufficient income.

Barbara of Bowie, MD has waited over two months for a response. Barbara writes:

I contacted Litton to receive a loan modification and sent them all the paper work. They stated they will do a worked out a plan to decrease my paments. In April 2009, I spoke with a Litton representative regarding my loan modification. It is now June 2009 and … I have not heard from Litton Loan Servicing Company. I don't know if Litton really modifies loans. According to there website they help people to stay out of foreclosure.

Payments held

More disturbingly, some consumers also complain that Litton is still holding mortgage payments they sent in long ago. Missy of Northlewisburg, OH writes:

They held mortgage payments we did make for reasons I don't know. Some are still being held today. So it looks like we are behind on payments.

Mary of Vista, CA says that Litton failed to apply payments to her escrow account:

Loan modification since Oct 2008. I have had nothing but problems with this company. Paid 1,500 towards the escrow account yet they did not apply it towards the account. Now they say I owe 3,500 toward escrow account. I recently paid 900 towards escrow account they are not showing that paid.

More litigation?

If Litton is again applying payments late, they are putting themselves at risk of incurring a second class action, or at least a number of individual lawsuits. While consumers covered by the first settlement agreement are unable to pursue further claims, the same is not true of homeowners who fall outside the class definition. The Supreme Court has held that class actions only bar subsequent actions if they could have been litigated during the original suit.

Litton's practices with regard to loan modification could also put it on shaky legal ground, given the strict disclosure requirements imposed by the Truth in Lending Act (TILA) and other federal legislation.

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